If you pay into a personal pension or a group personal pension, the government tops up your pension by adding basic rate tax relief of 20% to all your personal contributions. So, if you contribute £80 a month, £100 will be invested automatically in your plan – that’s an additional £20 at no extra cost to you.
There's a limit on the amount of pension contributions which can be made in a tax year that benefit from tax relief – this is the greater of £3,600 and 100% of relevant UK earnings up to a maximum of £60,000.
There are also certain limits that can affect the amount of tax relief you're entitled to.
- If total contributions made by you, your employer, or a third party exceed the current annual allowance (the total amount that can be paid into your pension(s) each tax year), there may be tax to pay on the excess. It is possible to carry forward unused annual allowance from the previous three tax years.
- If you exceed your annual allowance you still receive tax relief, but you will incur an annual allowance tax charge.
This is only a quick overview. In some situations, your pension allowances may be higher or lower than the standard limits. For example, if you earn a high income, your annual allowance may be reduced. If you start taking money from your pension in a flexible way, a lower allowance (called the Money Purchase Annual Allowance) may apply to future payments into your pension. For more information visit the HMRC website or speak to a financial adviser. There’s likely to be a charge for this. If you don’t have a financial adviser, you can find one in your area by visiting MoneyHelper, or find out more about advice services supported by Aegon by visiting Origen. Origen Financial Services Ltd is wholly owned by Aegon UK plc but operates independently to us.
This information is based on our understanding of current, taxation law and HMRC practice, which may change.